‘I bonds’ are the Taylor Swift of investment

A week after Taylor Swift’s Billboard-record-breaking album, Midnights, dropped, another humble vanilla product broke the internet: Series I Savings Bonds, aka “I bonds.”

Nearly $1 billion in I bonds was sold on October 28, flooding the Treasury website with so much traffic that it crashed. Compared to other headline-making financial instruments (see: million-dollar NFTs and hyper-leveraged day trades)—the I bond is boring. And that’s probably why it’s so popular.

I bonds are securities issued by the US government that fully mature in 30 years. Before November 1, the annual interest rate was 9.62%. It’s currently 6.89%. People flocked to the Treasury Direct site—the only place where I bonds can be bought—before November 1 to lock in that higher rate, as the Fed continues to fight the fastest-rising inflation in four decades. I bonds are a type of security meant to serve as inflation protection.

Like some crypto products, I bonds are touted as “nearly risk-free,” though the latter’s promise comes from the US government, and not a CEO who may flee the country at any moment. These I bond securities are also inherently less sexy than high-volatility products that can be bought and sold within days and that may experience “surprise” windfalls if event X or Y occurs. These savings bonds are not designed for frequent trading—they can’t be cashed out until they’ve been held for a year. And I bonds cashed within five years of purchase are subject to a three-month interest loss penalty.

It makes more sense to think of I bonds as competitors to longer-term options, like savings accounts. Even at the new 6.89% interest rate, I bonds are “still very attractive for a very low risk investment,” said Barbara O’Neill, the owner and CEO of MoneyTalk. Savings accounts currently have an average interest rate of 0.16%.

If these products sound like a great, low-risk way to park your millions, you’re out of luck. You can only buy up to $10,000 worth of I bonds per year through Treasury Direct. In addition, you can also opt to receive up to $5,000 of your federal tax refund as an I bond. (But if you have more than $15,000 to stash away: Congrats!)

O’Neill described I bonds as “America’s best-kept secret” in a March blog post. Now, she’s not sure if that phrase rings true, citing recent media coverage. “The secret is out,” she said.

—Ashwin Rodrigues